The Business Secretary's ambitions have both elevated and undermined him

Earlier this week, I unearthed and published the fact that Lord Mandelson, the First Secretary of State, had recently spent a shooting weekend at Waddesdon Manor, home of Lord Rothschild. A fellow guest was Saif al-Islam Gaddafi, son of the Libyan dictator. It was Gaddafi junior who accompanied Megrahi, the Lockerbie bomber, home to a riotous public welcome in Tripoli in August.

It is not hard to understand why Lord Mandelson would want to visit Waddesdon. Although not exactly beautiful – it is a 19th-century grand parody of a 16th-century French chateau – it is magnificent. It has a world-famous collection of the French decorative arts.

Waddesdon is also renowned for its hospitality. Before the Great War, guests would be offered coffee, tea or chocolate in their bedrooms when they awoke, with the choice of milk, cream or lemon. If they asked for cream, they were offered the choice of Alderney, Jersey or Guernsey. Lord Mandelson of Hartlepool and Foy's favourite is a drink called Canarino– boiling water with a twist of lemon peel – but I am sure he was well looked after.

And the Rothschild name continues to attract unusual people. Waddesdon's National Trust brochure draws attention to the rococo aviary "housing colourful exotic birds", which serves as a good description of the Rothschild guests. With a half-horrifying, half-admirable refusal to succumb to aristocratic restraint, Jacob Rothschild and his son Nat seem to scour the world for unusual people from rough countries with huge piles of money accumulated at astonishing speed.

It was the Rothschilds, you will remember, who entertained Lord Mandelson and the Russian billionaire Oleg Deripaska in Corfu. It was through them that George Osborne, the shadow chancellor, met Mr Deripaska and Lord Mandelson there, with embarrassing results. It was also chez Rothschild in Corfu that Lord Mandelson met Saif Gaddafi just before the release of the Lockerbie bomber.

When my story appeared this week, Lord Mandelson's spokesman responded with magnificent grandeur: "We do not offer a running commentary on Peter Mandelson's social engagements" – there simply isn't the time to handle such an extensive subject – "but we can confirm that he's never taken part in a pheasant shoot and never will" (they used the word "confirm", because I had mentioned that, while at Waddesdon, Lord Mandelson had not himself picked up a gun: it is young Gaddafi who is mad about the sport).

Since Peter Mandelson is the second most powerful person in the country (although there are those who say he is actually more powerful than the Prime Minister), we, the public, probably need to make up our minds what we think about this sort of thing. I must say I find it oddly difficult to decide.

On the one hand, there are reasons of state. Libya is undoubtedly an extremely unpleasant country, but, thanks largely to the skills of British Intelligence, the West persuaded Colonel Gaddafi to give up his weapons of mass destruction programme, and clamp down on terrorism. The release of Megrahi – part of the deal – feels appalling, and was certainly handled with maximum incompetence, but there is a realpolitik case here. The fact that Saif Gaddafi is happy to be in the company of the most famous Jewish family is also a good sign, when you think of the pernicious effect of the anti-Semitism which pervades the Arab world. Perhaps Lord Mandelson is doing the state some service by blocking his ears and watching this young blood blast pheasants out of the sky.

On the other hand, is a minister wise to spend private time with such people? Among his many titles, Lord Mandelson is Secretary of State for Business, Innovation and Skills. He was previously the European Union's Trade Commissioner. People such as the Rothschilds, Mr Deripaska and Mr Gaddafi have large business interests of a chiaroscuro kind, and Lord Mandelson is in a position to grant them favours. He needs to tread carefully, but can he?

There is also the question of taste. When King Edward VIII abdicated to marry Mrs Simpson, the Archbishop of Canterbury, Cosmo Lang, gave a famous broadcast in which he complained that the King "sought his happiness… within a social circle whose standards and ways of life are alien to all the best instincts and traditions of our people". Lang was condemned for his cant, yet later events showed that his judgment of that circle was not wrong.

Obviously, the great spin-doctor holds a less central place in the heart of the nation than did its glamorous young sovereign in 1936, but Lang's words could be applied to Peter Mandelson. He just can't keep away from the "colourful exotic birds", even though these associations have twice forced him to resign as a Cabinet minister. I remember lunching with him just after he had been forced out because he accepted a massive loan for a house from the millionaire Labour MP Geoffrey Robinson. He was utterly downcast, pale, broken, but he simply could not accept that he had done anything unwise. A loyal friend of Lord Mandelson points out to me that Lady Thatcher had lunch with General Pinochet when he was held here against his will. Why, he asks, was that better than Peter shooting the breeze (though not, as his office carefully emphasises, pheasants) with young Saif?

One big difference is that General Pinochet was very important in helping Britain win the Falklands war. The Gaddafi regime, by contrast, was responsible for the worst terrorist atrocity in British history and for the shooting of WPc Yvonne Fletcher.

But whenever I read the savage attacks on Peter Mandelson which come from both Old Labour and the Right-wing press, I find myself feeling a twinge of sympathy for him. The man is not a hypocrite. He is an effective minister. Although surprisingly tribal in his loyalty to Labour, he is open-minded enough to listen to anyone who he thinks has something intelligent to say. We always moan about how dreary our politicians are, but when we get one who isn't, we get grumpy. As a journalist, if not as a citizen, I am thrilled that Lord Mandelson is still with us, performing feats of social mountaineering so daring that one gets altitude sickness just from watching.

I suppose the big question about the First Secretary of State is the same as the question about New Labour itself. Has he driven forward the necessary task of modernising and moderating a party that desperately needed to be able once again to run the country? Or has he pushed our public life into a culture of chicanery, political lies and the circumvention of parliamentary democracy? The answer is, both.